Final Exam: Interest & Yield

Three lessons in, you can spot a misleading rate at fifty paces. Now prove it. This is the boss fight for the whole course — simple vs compound, APR vs APY, nominal vs real — with the most tempting wrong answers dressed up to look right. No new material, no charts to lean on, just you and the arithmetic. Read every option twice and commit.

How this exam works

This is a graded exam. Questions come one at a time. Once you submit an answer it is final — there is no going back, no second try, and a wrong answer simply fails that question. Your score stays hidden until the end, where you need 70% to pass. Read every option twice before you commit.

Question 1 of 24

Interest is best described as which of the following?

The drop in a currency's value caused by inflationThe fee a bank charges to open an accountRent paid for the use of money — a reward to the lender, a cost to the borrowerA government tax levied on every bank deposit

Select an answer to continue.

Course Recap

One last chunking of the whole course — three rate traps, one habit: never trust the number on the sticker, convert it to the rate that actually lands in your pocket.

Big picture

Interest & Yield — the whole course

Reading any rate
- Simple vs compound
  - Simple: interest on principal only → straight line
  - Compound: interest on interest → upward curve
  - Frequency helps a little, converges to a ceiling
- APR vs APY
  - APR = nominal rate, ignores compounding
  - APY = (1 + APR/n)^n − 1, the true annual rate
  - APY ≥ APR; equal only when n = 1
- Nominal vs real
  - Nominal = paper growth; real = buying power
  - Fisher: 1 + real = (1 + nominal) / (1 + inflation)
  - Real return can be negative when inflation wins

The three rate traps of the interest-and-yield course: simple vs compound (how interest grows), APR vs APY (compounding inside the quote), and nominal vs real (inflation eats buying power).

Key Takeaways

What to carry out of this course

The sticker rate is rarely the rate you get. Every theme in this course is one version of that single lesson — convert the quote into what actually lands in (or leaves) your pocket.
Simple vs compound: simple interest pays on principal only (straight line); compound pays on interest too (upward curve). The gap is tiny short-term and dominant long-term. Compounding frequency helps only marginally and converges to a ceiling — daily compounding does not double your money.
APR vs APY: APR is the nominal rate ignoring compounding; APY $= (1 + \text{APR}/n)^n - 1$ is the true rate. APY $\ge$ APR always, equal only when $n = 1$ . To compare products with different compounding, convert both to APY.
Nominal vs real: nominal is paper growth, real is buying power. Use Fisher: $1 + r_{\text{real}} = (1 + r_{\text{nominal}}) / (1 + r_{\text{inflation}})$ . A real return can be negative — a positive nominal yield can still leave you poorer if inflation wins.
The classic traps, retired for good: APR ≠ APY (in general), real returns can go negative, daily compounding does not double anything, and the extra over simple interest is interest-on-interest, not inflation.